PERNOD RICARD - 2018-2019 Universal registration document

6.

CONSOLIDATED FINANCIAL STATEMENTS Statutory Auditors’ report on the consolidated financial statements

Key Audit Matters

Responses as part of our audit

Tax risks (Notes 1.1.4, 4.7, 4.7.1, 4.7.2, 6.4 and 6.5 to the consolidated financial statements) The Group operates in numerous different tax jurisdictions. The tax authorities of the countries in which the Group companies operate regularly have queries on issues relating to their everyday activities. Tax audits can therefore give rise to tax reassessments and litigation with these tax authorities. The assessment of the risk related to each tax litigation is regularly reviewed by each concerned subsidiary or region and by the Group’s tax department, with the support of its external counsels for the most significant and complex litigations. As of 30 June 2019, part of the amount of provisions for contingences for all legal disputes or risks involving the Group relates to tax risks and litigation. More particularly, the Indian subsidiary is involved in disputes with customs and tax authorities over, among others, the declared transaction value of imported products into India and the tax deductibility of promotional and advertising expenses. As indicated in the Note 6.5 “Disputes”, management disputes the merits of the reassessment proposals and has not booked any provision for these matters. Given the Group’s exposure to tax issues, which are in part specific to its business sector, and the high level of management judgment in estimating the risks and amounts recorded, we considered tax risks to be a key audit matter and the understatement of the corresponding provisions to be a possible source of material misstatement in the financial statements. Recoverability of deferred tax assets relating to tax loss carryforwards (Notes 1.1.4 and 3.3 to the consolidated financial statements) As of 30 June 2019, a deferred tax expense of €99 million was recorded in the income statement, while deferred tax assets of €1,590 million (including €908 million relating to tax loss carryforwards) and deferred tax liabilities of €2,756 million were recognised in the balance sheet. Deferred tax assets in respect of tax losses are recognised if it is probable that the Group will have future taxable profits against which such losses will be used. The Group’s ability to recover its deferred tax assets relating to tax loss carryforwards is assessed by management at each year end taking into account future taxable income forecasts. These projections are based on assumptions arising frommanagement’s judgment. We considered the recoverability of deferred tax assets relating to tax loss carryforwards to be a key audit matter due to the significant judgments made by management in recognising these assets and the material amounts.

Based on discussions with management, we have been informed of the procedures implemented by the Group to identify uncertain tax positions and, where necessary, provide for tax risks. In addition, we assessed the judgments made by management in evaluating the probability of taxes being payable, the amount of potential exposure and the reasonableness of the estimates adopted for provisions for tax risks. We particularly focused on the impact of changes in local tax regulations and ongoing audits conducted by local tax authorities. To assess whether the tax liabilities were appropriately recognised, and with the assistance of our tax experts, we: conducted interviews with the Group’s tax department and regional — and local management teams in order to assess the current state of the investigations and reassessments made by tax authorities and monitor the development of ongoing tax disputes; consulted the recent Group company decisions and correspondence — with local tax authorities, and reviewed the correspondence between the relevant companies and their lawyers, where necessary; analysed lawyers’ responses to our information requests; — performed a critical review of the estimates and positions adopted by — management; assessed whether the latest developments were taken into account in — the provisions recorded in the balance sheet. We also assessed the disclosures in Notes 1.1.4, 4.7, 4.7.1, 4.7.2, 6.4 and 6.5 to the consolidated financial statements. Assisted by our tax experts from the relevant countries, where necessary, our audit approach consisted in assessing the probability that the company can utilise its current tax loss carryforwards in the future, particularly with regard to: deferred tax liabilities within the same tax jurisdiction that could be — offset against current tax loss carryforwards prior to their expiration; and the ability of the relevant subsidiaries to generate future taxable profits — in order to utilise current tax loss carryforwards, notably with regards to their consistency with management data and past performance. We also assessed the reasonableness of the main data and assumptions (earnings growth, sustainability of operations) used to calculate the taxable income forecasts underlying the recognition and recoverability of the deferred tax assets relating to tax loss carryforwards. We also assessed the appropriateness of the disclosures in Notes 1.1.4 and 3.3 to the consolidated financial statements.

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2018-2019

PERNOD RICARD UNIVERSAL REGISTRATIONDOCUMENT